Currency Analyst since 2010

Speculation about ECB’s QE cooled

  By Mark Jensen

FXBAZOOKA.com - EUR/USD has recovered from a 1-year low in the $1.3150 area to the levels above $1.3200 as the speculation about an imminent round of quantitative easing by the ECB cooled.

According to Reuters, which is citing some unnamed sources, the European Central Bank is unlikely to take new policy action next week unless inflation figures on Friday show the euro zone sinking significantly towards deflation.

Consumer prices in Spain fell in July by 0.5%. Traders are now waiting for German inflation data (forecast 0.0% vs. 0.3% previous) due later today and the reading for the entire euro area which is released on Friday (forecast 0.3% vs. 0.4% previous). But some say that if Friday’s numbers do show the euro zone getting even closer to deflationary territory, the ECB would necessarily act.

Analysts at Bank of New York Mellon point out that one “could have argued that QE should have come along when inflation was at 0.8 or 0.9%, so we can’t suddenly expect action just because inflation drops from 0.4% to 0.3%, or even if it were to drop unexpectedly to 0.2%.” Axel Merk, chief investment officer at Merk Investments, said that bond purchases would be difficult to launch and slow to implement, and the effects of Mr. Draghi’s words could dissipate as the debate within the central bank drags on.

Taking into account big EUR shorts one has to be cautious ahead of the Sept. 4 ECB meeting.

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